HSBC Ordered to Pay $1.1 Billion in Bail in French Tax Probe

HSBC Holdings Plc must pay a 1 billion-euro ($1.1 billion) bail after being charged in a French criminal probe into tax evasion at its private bank, three months after the same unit drew fresh scrutiny in the U.K.

HSBC on Wednesday was informed it was placed under formal criminal investigation regarding its private bank’s conduct in 2006 and 2007. The move came five months after HSBC’s Swiss unit was charged and ordered to post a 50 million-euro bail.

The decision is “without legal basis and the bail is unwarranted and excessive,” HSBC said in a statement from London on Thursday, adding it will appeal.

French President Francois Hollande has increased efforts to punish tax evasion since his former Budget Minister Jerome Cahuzac was forced to resign after his secret Swiss account was exposed. UBS Group AG, Switzerland’s largest bank, was forced to pay a 1.1 billion-euro security deposit last year to cover potential penalties in a separate French tax-evasion probe after its appeals failed. Judges estimated the Zurich-based bank helped French taxpayers hide about 9.8 billion euros.

France began scrutinizing HSBC’s Swiss private bank after Herve Falciani, a former information technology worker at the firm, stole client account details from HSBC’s Geneva office in 2008 and passed them to the French government.

Different Era

HSBC Chief Executive Officer Stuart Gulliver was called before U.K. lawmakers in February after fresh details from Falciani’s files showed how the bank helped drug cartels and arms dealers launder money, while advising customers on how to evade tax. The CEO also drew fire over a former personal Swiss bank account associated with a company registered in Panama.

“I suspect this is the French authorities trying to show they aren’t willing to let these issues wash by them any more, but it’s not clear what ultimate penalty this will lead to,” said Gary Greenwood, a Liverpool, England-based analyst at Shore Capital Group Ltd. with a hold rating on the stock. “One billion euros is not a lot for a bank as big as HSBC.”

Gulliver told U.K. lawmakers the bank’s behavior in the past was “clearly unacceptable” and the product of a different era. Chairman Douglas Flint said the bank is “suffering from horrible reputational damage” as a result.

“With all the big banks there’s an expectation that they’re going to face many more fines like this down the line,” Shore Capital’s Greenwood said.

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